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The Steve Puetz Letter

Total Collapse

The world monetary system moves closer toward Total Collapse -- an all encompassing collapse that will destroy debts, businesses, financial institutions, and most important of all, it will bring down governments. It will be a lot like what has already happened in the former Soviet Union.

For thousands of years, either gold or silver has always been the center-piece of every important monetary system -- that is, until 1971 when the United States went off of the Bretton Woods gold standard. Since then, a global fiat-credit monetary system, with the US Dollar as the world's primary reserve currency, has created repeated crises. Hence, when the collapse does arrive, gold's lengthy monetary history will put it in position to regain its former glory.

To understand gold and our monetary system better, it's essential to review the history of money. To get started, a couple of important questions are in order:

What is money?

What is credit?

These examinations of definition are important because, in the current period of the late 20th century, most people have confused the two. Economists refer to M1, M2, and M3 as money-supply numbers when they are really talking about Federal Reserve notes, check book balances, and other bank deposits. Investors talk about their money-market funds when they actually own mutual funds that invest in credit-market instruments. During the past few decades, the confusion between money and credit has steered many investors in the wrong direction.

MONEY is any article or substance that can be used as a medium-of-exchange, a measure-of-value, and a store-of-value. These three monetary functions are described as follows:

a) A MEDIUM-OF-EXCHANGE. Money is a developed form of barter. Money is the medium between the exchange of one good or service for a second good or service. In the case of a fiat money (or artificial money), such as the US Dollar, or virtually every other currency around the globe, its sole value is to serve as a medium of exchange. With time, however, fiat money almost always loses its value. In the case of a hyper-inflation, a fiat money may lose its purchasing power in a matter of days.

b) A MEASURE-OF-VALUE. Money is the common denominator by which all other goods and services may be priced. To be a true measure of value, the money must be accepted by virtually all members of the economic community.

c) A STORE-OF-VALUE AND A STANDARD-OF-DEFERRED-PAYMENTS. That is, money must be a carrier of value through time and space. For the saver or lender in a credit transaction, he wants at least the same purchasing power when he gets repaid as when he lent the money. No money has ever satisfied this condition perfectly, although some moneys have performed this function much better than others. Gold and silver have come closer than any other objects in satisfying this monetary condition.

CREDIT is confidence in a purchaser's ability and intention to pay, displayed by entrusting him with goods or services without immediate payment. Extending credit involves the combination of:

a) Giving a loan by a lender, and

b) Receiving a loan by a borrower.

Since the time of recorded history, it is interesting to note that credit came first, and coined-money came later -- in fact, 2,000 years later. Old Sumerian records, more than 5,000 years old, indicate widespread use of credit. The credit was extended on either:

A loan of grain by volume, or a loan of metal by weight.

The records also demonstrate that some of these loans required the repayment of the original loan, plus interest in the form of a little extra grain or metal.

In prehistoric times, there is circumstantial evidence of credit-like transactions in communities where no hint of any medium-of-exchange can be discovered. Credit developed in the earliest phases of economic activity -- even before barter.

Primitive credit consisted of the same type of simple loans that people still make with each other today -- short-term loans of food, tools, and household goods. In those days, a loan of seed by a father to his son, to be paid back at the time of the next harvest, was a much simpler transaction than a bartered transaction of exchanging goods for the seed. Also, loans of animals and tools were easy credit transactions.

Two types of loans developed early in history. The first was a simple loan that had to be paid back in full. The second was a loan-at-interest which required full payment, plus extra goods at interest.